Why is Financial Education/Literacy Important?

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Why is Financial Education/Literacy Important?. Financial Empowerment. Presented By : Patrice B. Duncan, EVP & Anthony Harris, AVP D&E, The Power Group. What is Financial Empowerment?. - PowerPoint PPT Presentation

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  • Why is Financial Education/Literacy Important? Presented By:Patrice B. Duncan, EVP&Anthony Harris, AVPD&E, The Power GroupFinancial Empowerment

  • What is Financial Empowerment?Empowerment itself is the process of increasing the capacity of individuals or groups to make choices and to transform those choices into desired actions.

    Financial empowerment therefore is the transfer of personal money power (financial independence) to an individual.

    It is a process of moving from financial instability to a position of financial stability through investment.

  • What is Financial Literacy?

    Financial literacy is the knowledge about personal finance that enables people to confidently manage their financial lives.

    When it comes to managing your budget, paying bills, and knowing the right financial services for you, KNOWLEDGE IS POWER!

  • Case Study Emily & KarenEmily and Karen are friends who borrow about the same amount of money over their lifetimes:

    Each gets $20,000 in private student loans to help pay for college.

  • Case Study Emily & KarenDuring college they get their first credit cards, and each carry an $8,000 balance, on average, over the years.

    They buy new cars after graduation and replace them every seven years until they buy their last vehicles at age 70.

  • Case Study Emily & Karen

    Each buys her first home with a $300,000 mortgage at age 30 and then moves up to a larger house with a $400,000 mortgage after turning 40.

    Each takes out a $50,000 home-improvement loan to remodel the second house.

  • Case Study Emily & Karen

    Emily has a FICO Score of 750, which is considered good to excellent. Emily maintains her good credit scores by always paying her bills on time, applying for credit sparingly and never maxing out her credit cards. Lenders respond by increasing her credit limits and giving her more offers of credit, allowing her to spread her balances across several cards and further protect her scores.

  • Case Study Emily & Karen

  • Case Study Private student loans: An $8,000 difference

    Federal student loans don't take credit scores into account, but private student loans do, and the penalty for worse credit is significant. Interest rates vary by lender, but someone with a 750 score can expect rates that are around 5 to 6 percentage points cheaper than someone with a 650 score, said Mark Kantrowitz of FinAid.

  • Case Study Emily & KarenPrivate Student Loans - $8,000 differenceEmily 750 FICO Score

    Interest Rate - 7.25%Monthly Payment - $234 Total interest paid (10 yrs)$8,176

    Karen 650 FICO Score

    Interest Rate - 13.25%Monthly Payment - $302Total interest paid (10 yrs)$16,189 Karen's Penalty $8,013

  • Case StudyCredit Cards: $60 more a month

    Credit card issuers have tightened their lending standards in the past couple of years, which means higher rates and stricter standards for just about everyone. Whereas a 720 credit score used to get you the best rates and terms from many issuers, some now require 750. Even getting a card can be tough if your scores are below 675, according to Curtis Arnold of CardRatings.com. A few years ago, even those with "subprime" scores in the low 600s had a slew of offers.

  • Case Study Emily & KarenCredit Cards- $60 difference per mth.Emily - 750 FICO Score

    Interest Rate - 10.99%Annual Interest- $880 Lifetime interest $44,000

    Karen 650 FICO Score

    Interest Rate 19.99%Annual Interest- $1,600Lifetime interest $80,000Karen's Penalty $36,000

  • Case Study Auto loans: $5,400 more per car

    A few years ago, Karen would have paid about 3 percentage points more for a 60-month new-car loan. Today, that penalty is more than twice as high, according to myFICO.com, which tracks rates for auto and mortgage loans based on FICO credit scores. The difference significantly inflates the interest costs for every $25,000 vehicle she finances over a lifetime.

  • Case Study Emily & Karen Auto loans: $5,400 more per car

    Emily - 750 FICO Score

    Interest Rate - 5.78%Monthly Payment - $481 Interest cost per car $3,843Lifetime interest paid -$30,768

    Karen 650 FICO Score

    Interest Rate 13.24%Monthly Payment - $572Interest cost per car $9,310 Lifetime interest paid $74,480Karens Penalty $43,712

  • The Role of Financial Education

    Financial education plays a significant role in our society by empowering people with required knowledge and skills to make accurate consumer decisions, follow appropriate financial practices, and achieve economic well being.

  • The Role of Financial Education

    However, some financial education programs narrowly focus only on changing people's financial knowledge and make the assumption that this leads automatically to changes in financial behavior.

  • The Role of Financial Education

    This assumption may work at times; however, changing financial behavior (not just increasing financial knowledge) is essential for a person to reach financial goals and achieve financial well being.

  • Major Topics of Financial EducationFinancial education is a very broad subject and typical topics covered include:BudgetingCash-flow management CreditBanking Savings and Investments.

  • Major Topics of Financial Education

    Other topics of discussion can encompass:Goal Setting Wise Consumer Practices Consumer Laws & RightsRetirement PlanningLife & Death Insurance

  • Major Topics of Financial Education

    While the importance of some topics may change over time, other topics, such as Decision-making Cash-flow management Savings Credit, debt, housing, and planning for the future will always represent the core topic areas of financial education.

  • Educational Settings

    Financial education is very similar to other educational programs. It takes place in formal, non-formal, and informal educational settings. Formal settings include credit courses offered in high school and colleges.

  • Educational Settings

    Non-formal settings include financial education training workshops and counseling programs provided by various organizations and individuals outside of formal educational institutions. i.e. non-profits

  • Educational Settings

    Informal financial education comes from everyday interactions with people and mass media, i.e. news, work, internet, family etc.

  • Key Elements

    Before the financial educator begins the program evaluation process, it is important to review the education program to make sure that it has all the key elements to function successfully.

  • Key Elements & PreparationMust haves..Identified target participant group Identified financial education needs Program objectives designed to meet identified needs Educational materials and lesson plans chosen to achieve learning objectives

  • Key Elements & PreparationDelivery method chosen to facilitate participant access to educational materials, i.e. lecture, internet, group, individual etc.

    Inclusion of evaluation plan and data-collecting instruments

  • Key Elements & PreparationTrained and/or certified financial educator(s) to facilitate learning, i.e. NeighborWorks, HUD, etc.

    Program monitoring plan to utilize evaluation data for building stronger programs and funding strategies

  • Target AudiencesTarget audiences of financial education are very diverse. Participants' ages, levels of education, socio-economic backgrounds, and learning needs can vary greatly. For example, the ages of potential audiences can range from youth to older adult.

  • Target AudiencesThe levels of education can range from elementary school to graduate school.

    This variation underscores the educational diversity of potential audiences of financial education programs.

  • Target Audiences

    Additionally, the need determines how to carefully select educational materials, delivery methods, and the evaluation approach based on the needs of each audience to achieve desired results.

  • Methods of Financial Education Delivery

    Various methods are used to deliver financial education programs. These methods can be classified under three main categories: Individual MethodsGroup MethodsMass Methods

  • Methods of Financial Education Delivery

    Individual Methods One-on-one counseling Telephone advising Computer/Internet Learning

  • Methods of Financial Education Delivery

    Group Methods Seminars/presentations Training workshops Workshop series Credit courses offered through formal educational institutions

  • Methods of Financial Education Delivery

    Mass Methods Web-based programs Interactive CD programs TV programs Newsletters/papers Radio programs

  • Evaluation ToolsEvaluation is a key component of Financial Education Programs. There are many different types of evaluation tools depending on the object being evaluated and the purpose of the evaluation. Perhaps the most important basic distinction in evaluation types is that between formative and summative evaluation.

  • Evaluation ToolsFormative evaluations strengthen or improve the object being evaluated -- they help form it by examining the delivery of the program or technology, the quality of its implementation, and the assessment of the organizational context, personnel, procedures, inputs, and so on.

  • Evaluation ToolsSummative evaluations, in contrast, examine the effects or outcomes of some object -- they summarize it by describing what happens subsequent to delivery of the program or technology; assessing whether the object can be said to have caused the outcome;

  • Evaluation Tools

    Determining the overall impact of the causal factor beyond only the immediate target outcomes; and, estimating the relative costs associated with the object.

  • Evaluation ToolsFormative evaluation includes several evaluation types: Needs assessment determines who needs the program, how great the need is, and what might work to meet the need Evaluability assessment determines whether an evaluation is feasible and how stakeholders can help shape its usefulness

  • Evaluation ToolsFormative evaluation includes several evaluation types: Structured conceptualization helps stakeholders define the program or technology, the target population, and the possible outcomes Implementation evaluation monitors the fidelity of the program or technology delivery

  • Evaluation ToolsFormative evaluation includes several evaluation types:

    Process evaluation investigates the process of delivering the program or technology, including alternative delivery procedures

  • Financial Education Resources & CurriculumsFDIC Money SmartFreddie Mac Credit SmartNEFE National Endowment for Financial EducationFederal Reserve Bank Guide to Financial Literacy ResourcesJump$tart Financial Literacy

  • Sample PresentationGoal SettingBudgetingCredit

  • Five Rules to Goal SettingRule #1: Set Goals that Motivate You Making sure it is something that's important to you and there is value in achieving it.

  • Five Rules to Goal SettingRule #2: Set SMART Goals

    -Specific -Measurable -Attainable -Relevant -Time Bound

  • Five Rules to Goal SettingRule #3: Set Goals in Writing

    Put them on your walls, desk, computer monitor, bathroom mirror or refrigerator as a constant reminder.

  • Five Rules to Goal SettingRule #4: Make an Action PlanWrite out the individual steps, and then cross each one off as you complete it.

  • Five Rules to Goal SettingRule #5: Stick With It! Remember to review your goals continuously.

  • How to BudgetGetting started with making a plan for your moneyPlanning how to spend your moneyDeveloping a spending plan to meet your goalsMaking your spending planThe importance of savingGetting help

  • Why Do You Need a Spending Plan?To prepare for large expensesTo encourage savingsTo prepare for surprise expensesTo identify wasteful spendingTo accomplish goals

  • Neighborhood Reinvestment Training InstituteRate Your Spending HabitsWhat would be hardest?Is a house worth giving these things up?Are you ready to do this now? Are there other things you want to do first? What things would be easiest to change?

  • The Steps in Establishing a Spending PlanDetermine your monthly net incomeCalculate your monthly expensesSubtract your regular expenses from your income

  • Neighborhood Reinvestment Training InstituteKeeping Track of Spending Save all receipts Use a small notebook

  • Setting Family GoalsTalk about goals as a familyBe specificWrite down all family members goals and rank them in order of importanceAgree on your top goalsFigure out how much it will cost to reach your goals

  • Wants vs. NeedsNeeds= items you must have for basic survivalWants= things you desire but can live without

  • Money Management TipsPlan according to current incomePlan ahead for six monthsInclude spending money for allKeep record keeping simple

  • Money Management TipsSet money aside for maintenancePay yourself first at least 10% of take-home payGet consensus from entire family

  • Reviewing the PlanIs our spending plan working?Are all family members able to follow it?Which costs always seem to be over the planned amount?Are we getting closer to reaching our goals?

  • Ways to Make Money Management EasierConsider consolidating credit card accountsConsider selling a carCheck your interest ratesStick to the plan

  • Importance of Saving$1,504.09 in 2 years$2/ day2% interest=Try to save 10% of your income on a monthly basis!

  • Types of Savings AccountsRegular savings accountClub accountCertificate of deposit (CD)Money market accountMatched savings account

  • Tips for SaversPay yourself firstOpen a savings account far away from home and workSave change at end of dayBank your surprises

  • Saving $1 a Day

    No Interest5% Daily CompoundingYear 1$365$374Year 5$1,825$2,073Year 10$3,650$4,735Year 30$10,950$25,415

  • Key PointsThe value of creditDifferent types of loansWhat a credit report is and how it is usedHow to read a credit reportHow to start restoring creditHow to recognize credit restoration scamsAvailable credit resources

  • Key PointsThe characteristics of a credit card The costs of using a credit card The potential problems with credit card use

  • Importance of Credit Can be useful in times of emergencies Is sometimes more convenient than cash Allows you to make large purchases

  • Types of Credit

    Secured

    Unsecured

  • Collateral ItemsAutomobiles

    Homes

    Savings and investment accounts

  • Consumer Installment LoansAutomobile

    Computer

    Furniture

    College tuition

  • Credit CardsOngoing ability to borrow money for:

    Household

    Family

    Personal expenses

  • Home LoansHome purchase loans

    Home refinance loans

    Home equity loans

  • Fees Annual maintenance fees

    Service charges

    Late fees

  • Cost of CreditAmount financed$5,000

    APR12%

    Finance charge$675.31

    Total of payments$5,675.31

  • Be careful of Rent-to-own services

    Payday loans

  • Four Cs of CreditCapacityCapitalCollateral(Character the 4th C)

  • Credit Reporting AgenciesEquifaxwww.equifax.com (800) 685-1111Experian www.experian.com (888) EXPERIAN (397-3742)Trans Unionwww.transunion.com (800) 916-8800For a merged report: True Credit (merged) www.truecredit.com

  • Tips to Manage Your CreditIf possible, pay off your entire bill each month

    Pay on time to avoid late fees and protect your credit

    Always check your monthly statement to verify transactions

  • Tips to Manage Your Credit Ignore offers creditors may send you to reduce or skip payments

    Think about the cost difference if you purchase your item with cash versus credit

  • What is in a Credit Report? Identifying information

    Credit history

    Public record information

    Inquiries

  • Credit Scoring Payment history35% Outstanding debt 30% Credit history 15% Types of credit10% Credit inquiries10%

  • Credit Agencies Credit Score

    ExperianFair IssacTrans UnionEmpiricaEquifaxBeacon

  • FICO Credit Scoring The higher the score the better

    Most consumers score between 300 and 850

    www.myfico.com

  • FICO Credit Scoring 660+ = easy to obtain credit at a low interest rate

    620-660 = may need additional documentation to get a good rate

  • DefinitionsTax Lien - a claim against a property filed by the taxing authority for unpaid taxes

    Judgment - a court order placing a lien on a debtors property as security for a debt owed to a creditor

  • DefinitionsCollection account - a past due account that has been referred to a specialist to collect part or all of the debt

    Bankruptcy - a legal proceeding that can legally release a person from repaying debts that a person cannot pay back

  • BankruptciesChapter 13 - the debtor keeps all of his/her property and makes regular payments on the debts after filing for bankruptcy

    Chapter 7 - the debtor gives up all nonexempt property and keeps exempt property (property that state law determines is needed for support of the debtor and his/her dependents)

  • Negative Credit Report Information

    Type of negative informationMaximum time on credit reportGeneral Civil Judgments7 years from the date filedTax Liens7 years from the date paidIndefinite if not paidChapter 13 Bankruptcy- dismissed or discharged7 yearsAll other Bankruptcies10 years

  • When is your Credit Report free?You have been recently denied credit

    You have been recently denied employment or insurance

    You suspect someone has been fraudulently using your account

  • When is your Credit Report free?You are unemployed and intend to apply for employment within 60 days

    You receive public welfare assistance

    You live in certain states

  • Identity TheftContact the fraud department of the three major credit reporting agencies

    Contact your creditors

    File a report at your local police station

  • Identity Theft Resourceswww.consumer.gov/idtheft or 1-877-IDTHEFT (438-4338)

    www.fraud.org or 1-800-876-7060

  • What are ways to Build a Credit History?Apply for a small loan at a bank or credit union where you have checking or savings accounts

    Apply for credit with a local store

    Make a large down payment on a purchase and negotiate credit payments for the balance

  • What are ways to Build a Credit History?Ask a friend or relative with an established credit history to be a co-signer for you

    Pay your bills on time

    Establish nontraditional credit through regular rent and utility payments

  • To Rehabilitate Your Own CreditStart by contacting credit reporting agencies to get copies of your credit report

    If there are errors, request an investigation

    Contact lenders to renegotiate payment plans

    Visit a credit counseling agency

  • Tips for Credit CounselingInterview several credit counseling agencies before signing a contract

    Check with your state attorney general, local consumer protection agency and the Better Business Bureau for complaints

    Ask for information from the agency about itself and its services

    Ask questions about services and fees

  • True Statements about Credit RehabilitationNo one can have accurate information removed from your credit report

    If you have bad credit, it can take years to repair your credit legitimately

    No one can create a new identity for you

    You can order your credit report yourself and dispute any errors on your own

  • Credit Card TermsAnnual percentage rate- the rate of interest you are charged plus fees, expressed as a yearly rate

    Fees- charges for annual usage, late payments or balances that over-the-limit

  • Credit Card TermsGrace period - the number of days you have to pay your balance before a creditor starts charging interest

    Balance computation method - how your interest is calculated

  • Interest Rate

    Fixed - the interest rate will not change

    Variable - the interest rate can increase or decrease

  • Shopping for a Credit CardDecide how much you will use your cardStart smallUnderstand the termsBe aware that introductory rates will changeAvoid application feesUnderstand fixed and variable rates

  • Cost of making Minimum Payments

    ItemPriceAPRInterest PaidHow much you really pay for the itemTotal years to pay offTV$50018%$439$9398Computer$1,00018%$1,899$2,89919Furniture$2,50018%$8,781$11,28134

  • Benefit of Making Higher Payments

    Original BalanceAPRMonthly PaymentsTotal Number of PaymentsTotal Years to Pay offTotal of Payments$2,50018%Minimum payment40434$8,781$2,50018%$50948$4,698$2,50018%$100323$3,163

  • Finance Charge CalculationAPR is 18%Daily periodic rate is 0.0493% (18% divided by 365 days)Multiply the average daily balance ($200) by the daily periodic rateEquals $.10 per day (for each day you have the $200 balance)Finance charge is $.10 x 30 days or $3.00

  • Tips for using Credit CardsPay your bills on timeKeep your receiptsProtect your credit card and account numbersKeep a record of your account numbersCarry only the credit cards you think you will usePay off the total balance each monthRead the fine print

  • Correcting Credit Card ProblemsPay off credit card and higher interest rate loans first

    Pay for future purchases using check or cash

    See a reputable credit counselor

  • Contact UsD&E, A Financial Education and Training Institute, Inc.4532 Jonesboro Road2nd floorForest Park, GA 302971-877-790-1831 toll(770) 961-6900 office(770) 961-8900 faxinfo@depower.org emailwww.depower.org website

    It is critically important to establish relationships with experts in the Financial Education Industry to ensure accurate information is discussed and disseminated during workshops.*It is critically important to establish relationships with experts in the Financial Education Industry to ensure accurate information is discussed and disseminated during workshops.*Some topics in financial education will continue to evolve in content and importance as both the economy and government policies that affect those topics continue to change. ***